Consumers launched into 2013 with the biggest spending splurge in 12 years, supporting speculation the Reserve Bank of Australia’s next move will be to raise interest rates.

Retail sales jumped 1.3 per cent in February – more than four times what economists forecast, the Australian Bureau of Statistics said on Thursday. The bureau revised up January’s increase to 1.2 per cent.

A separate report showed the so-far moribund building industry may be on the cusp of a turnaround, with approvals for new dwellings climbing a better than expected 3.1 per cent in February.

Both sets of figures lend support to increased confidence among Reserve Bank policymakers that last year’s sharp official rate cuts are having an “expansionary" effect on the economy, with more positive signs likely to emerge in coming months.

Consumer confidence has climbed above average in recent months, helped by rising employment and house prices, as well as a more positive global outlook.

The February surge was broad based, but particularly strongly driven by household goods retailing, eating out and shopping at department stores, the ABS said. The January-February gain was the strongest for those months since 2001.

Gareth Aird
, an economist at Commonwealth Bank, said the outlook for retail sales was for more good news, given many households had spent the last few years paying down debt and boosting savings.

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“Consumers have strengthened their cash reserves enabling them to increase spending as they see fit," he said. “And with a backdrop of improving global sentiment and rising asset prices, there are reasons to be cautiously optimistic over healthy retail sales growth."

The rebound in consumption is likely to reinvigorate debate about whether the Reserve Bank will need to start raising borrowing costs later this year, as is forecast by a minority of economists. Robust consumer spending should flow through to increased business investment outside the mining industry, something that would be incompatible with a cash rate close to a record low.

Currently there are no signs that inflation pressures are growing, but a period of sustained consumption growth would most likely change that. Economists speculated that the surge in February spending was a positive omen for first-quarter economic growth, which many had expected to be weak.

Part of the January-February sales surge may have been driven by the government’s school kids bonus, which saw families receive cash payments of as much as $410 in January.

Australian National Retailers Association chief executive officer
Margy Osmond
said the industry was hopeful that the gains would continue. But she said retailers were holding their breath to see whether the Reserve Bank delivered more rate cuts to further boost confidence.

“With increasing talk of a cash rate increase now, rather than continued decline, consumers may again apply the spending brakes," she said.

Financial markets see a 22 per cent chance the RBA will cut the cash rate at its May meeting, compared with 57 per cent a month ago.

The sales splurge was led by a 1.6 per cent rise in household goods sales. Department stores posted a similar increase, while outlays at cafes and eating out rose 1.3 per cent.